Manufacturing ISM, China and Greece

Today the Manufacturing ISM report for September came in at 51.6 which was better than expectation and which indicates that the US manufacturing sector expanded in September. The employment index increased  to 53.8 from 51.8. Now here is the bad news, backlogs fell quite strongly to 41.5 from 46. So it appears what really happened was that manufacturers dug into their backlog to keep production expanding. The new orders index came in weak at 49.6. So unless new orders pick up in October there is a chance that manufacturing might contract in October.

Looking at the action last week, it appears that a hard landing in China was the main driver of the weakness as Chinese sensitive stocks like Macau based casinos and commodity prices got hit hard.

This week Greece is again coming back to the fore front as there is speculation that a Greece default is imminent within the next two weeks. Traders are stepping away from buying as it is hard to quantify what will be the fallout from a default. In 2008, many investors initially thought that the Lehman bankruptcy might not be very negative but they learned a hard lesson. Therefore I think investors are being very cautious this time. Financial stocks got hit very hard due to worries over financial contagion although the financial companies are most likely in much better shape compared to 2008.

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